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Horizon Capital Ukraine Ground Floor Opportunity ppt

2.
2
Source: Reuters, Hromadske 2015
“…Next door to Russia there is a
complicated place, but also more
attractive – it has a much better Finance
Minister than anyone you can find in that
part of the world…
Ukraine is an extremely attractive place
to invest and I would look at that place as
a place if you want to take some risk and
you are investing in dollars, but there
aren’t that many people investing in
Ukraine, so you’re probably going to buy
some things that are going to be
relatively inexpensive”
- David Rubinstein, Carlyle Group
"I stand ready. There are concrete investment
ideas, for example in agriculture and
infrastructure projects. I would put in $1 billion”
- George Soros, Soros Fund Management
"Personally, I think that Ukraine is a good
place to invest. I'm hopeful that Virgin would
start doing business in Ukraine”
- Richard Branson, Virgin Group
Invest in Ukraine?

3.
Invest in Ukraine?
Why would respected, seasoned
investors like Rubinstein, Soros or
Branson be bullish about investing in
Ukraine when the “bears” are much
louder and more numerous?
3

4.
Foreword
The “bear” perspective on Ukraine is clear. The challenges faced by the
country are known and well-documented by analysts and media
throughout the world.
What is missing though, is a contrarian perspective, which, while
recognizing the challenges and risks, also gives a voice to the compelling
reasons to consider Ukraine today as an investment destination.
To that end, this presentation makes a bullish case for Ukraine.
Each crisis opens up opportunities, and the latter is what we have chosen
to focus our attention upon.
For above all, what we see in 2015 in Ukraine is a historical, ground-floor
investment opportunity.
4

18.
Can this be also the story of Ukraine in 2015?
18
Kyiv Maidan, 15 December 2013
The Revolution of Dignity
marks a paradigm shift in
Ukrainian society, politics
and inevitably, the economy
The active, pro-European
civil society – the Maidan
generation, intolerant of
abuses and relentless in
their controlling function,
warrants a point of no
return for the transformation
of the country

20.
A president elected for the first time by both, East & West in Ukraine
20
Presidential elections 2004:
Yushchenko
Presidential elections 2010:
Yanukovich
Presidential elections 2014:
Poroshenko
For the first time, Ukrainian people did not split along geopolitical
or language lines. President Poroshenko won in the outright
majority of constituencies

29.
Privatization: shaking-off the inefficient state-owned enterprises
29
State-owned companies contribution, % GDP
Source: Ministry of Economic Development and Trade of Ukraine
-3.0%
-2.0%
-1.0%
0.0%
1.0%
-2.5%
0.2%
Subsidies
Dividends
The Ministry of Economy announced a bold
privatization agenda to address the systemic
inefficiencies of the state owned enterprises
Over 1,800 SOEs generated in 2014 a net loss of
UAH 115 billion and consuming subsidies of
2.5% of GDP
Analysis shows a potential income of at least
UAH 60 billion
Privatization program aims to divest over 300
state enterprises in the first phase
As a first step, data about the top-100 SOEs has
been made public, including financial statements

30.
Banking: cleaning up the sector, shutting down “pocket banks”
30
Number of banks where temporary
administration or liquidation was initiated
13
22
7
6
5
0
6
12
18
24
2Q151Q154Q143Q142Q14
Source: National Bank of Ukraine, DGF
The government has to resolve insolvent banks
through recapitalization and liquidation
Since early 2014, over 50 banks out of 180 have
closed their doors, as the NBU has increased
capital requirements and committed to ridding the
system of “pocket banks”
Structural impediments in the system are being
addressed, preventing a wide-spread practice of
channeling excessive lending to insiders
The adoption of the law on strengthening bank
owner responsibility, as demanded by the IMF,
should improve corporate governance and bring
more transparency to the sector, again lowering
the burden on the state to save failing banks

31.
Deregulation: ease of doing business a key KPI for government
31
50
100
150
200
2015
96
2014
112
2013
137
2012
152
Source: World Bank, Ministry of Economic Development and Trade of Ukraine
Ukraine’s ranking in Ease of Doing Business,
inversed scale An ambitious deregulation program has
been launched, with over 70 initiatives,
from scrapping a quarantine certificate
for grain transportation, to liberalizing
the land market, to simplifying the
immigration rules for expats
Licensing for 26 business activities has
been abolished and 16 regulations
scrapped
The Ministry of Economy estimates the
program to generate between $2.4 - $3.3
billion in savings for the business
community and dramatically improve
Ukraine’s standing in the World Bank’s
Ease of Doing Business Rating

49.
Tech talent + cheap living + global outlook = thriving tech ecosystem
49
IT outsourcing is one of the
perennial growth hope stories for
Ukraine, drawing its inspiration
from the Soviet tradition of science
teaching, and the country’s plethora
of scientific institutes that used to
churn out rocket scientists. Under
market conditions, the schools have
switched to producing programmers
– an estimated 16,000 new IT
specialists graduate each year
The huge IT outsourcing sector feeds increasing number of
risk-taking tech talent, with a cosmopolitan outlook, willing
to strike on their own and launch globally-focused tech
startups. The low costs of living and progressive big-city
culture, further add to a thriving tech ecosystem

59.
Ideally positioned to be a manufacturing and trading platform
59
Source: www.worldatlas.com, www.travelmath.com
Kilometers distance to select cities from Lviv Flight hours to select cities from Kyiv
LvivWarsaw
390
Budapest
570
Berlin
930
Milan
1,560
London
1,990
KyivIstanbul
2
Berlin
2
London
3
NYC
10
Beijing
9
Dubai
5
In a world of tighter supply chains, faster product innovation cycles, Ukraine has a real
chance to emerge as a manufacturing and trading hub at the frontier of EU, Middle East
and Asia. A case in point, Western Ukraine emerged as home to a vibrant automotive
spare-parts manufacturing cluster

60.
60
Source: Kyiv Post, HCA
Light manufacturing Machinery & Equipment
“The production of
Ukrainian workers can
compete with the
European level in terms
of quality. There's a
new, highly-educated
generation of creative
people who want to see
their country strong.
I'm an optimist”
- Dietmar Kung,
Hugo Boss
Proven by top global brands who localized production in Ukraine

62.
“Hands”: recap
• Demand for labor remains high, as many industries are still
very labor intensive
• Ukraine enjoys a very attractive location, at the intersection of
the EU, Middle East, Asia
• Signing of historical EU DCFTA to further boost attractiveness
• The manufacturing labor costs are very competitive, even
compared to China
• Cost, advantageous FTAs and proximity to large markets
position Ukraine as ideal manufacturing and trading platform
62

66.
World’s leading positions in a number of markets
66
Source: Ministry of Agricultural Policy and Food
#1 in sunflower oil
#2 in grains
#3 in corn
#4 in barley
#6 in wheat
#7 in soybean
#8 in poultry

79.
“Grains”: recap
• Global demand for food keeps rising
• Ukraine is home to 1/3 of the most fertile soils on earth
• Soils, location and scale warrant a lasting cost advantage for
Ukrainian producers
• The room for upside is still large, as further technologization
will keep pushing the yields up
• As the industry matures, it moves up the value chain, boosts
profits, creating a thriving agricultural cluster
79

83.
Final recap
• The Revolution of Dignity led to a paradigm shift in
Ukrainian society, politics and inevitably – the economy
• Young, technocratic government leading a bold, structural
reforms agenda
• Uncompromising, active, tech-savvy civil society warrants
the change is lasting = point of no return
• Sustainable competitive advantages in IT, Manufacturing,
Agriculture open up attractive investment opportunities
• Valuations are at historical lows = an ideal time to seize on
the potential upside
83

84.
About – Horizon Capital
Horizon Capital is a private equity fund manager that
originates and manages investments in mid-cap companies
with high growth and profit potential in Ukraine and the near
region. Learn more at www.horizoncapital.com.ua
84

87.
Disclosure
The attached presentation of Horizon Capital does not constitute an offer to sell or a
solicitation of an offer to purchase an interest in any Horizon Capital private equity fund
or sponsored investment.
Certain economic and market information contained herein has been obtained from
published sources prepared by other parties. While such sources are believed to be
reliable, none of Horizon Capital or its affiliates assumes any responsibility for such
information. Recipient should make its own investigations and evaluations of the
information contained herein.
Recipient is cautioned not to place undue reliance on any forward-looking statements,
and Horizon Capital assumes no obligation to update any forward-looking statements as
a result of new information, subsequent events or any other circumstances. Such
statements speak only as of the date that they were originally made.
While presenting the opportunity for monetary gain, an investment in Ukraine will
involve a high degree of risk and is suitable only for investors that have no immediate
need for liquidity of the amount invested and can withstand a loss of their entire
investment. 87